What documents do I need to provide?
What is the flow of communication between my attorney and myself?

Should I continue to make my mortgage payments
if I am accepted as a plaintiff on this suit?

What if I’m dealing with a pending foreclosure?

What about those annoying calls from my lender(s)?

How long until I can expect resolution?

What is the motivation behind this law suit?

In a nutshell, what did the banks do wrong?

How Did This Whole Mess Happen?

The Breakdown

To put this in perspective…the banks got greedy, really greedy. They were not satisfied with just making the 6% interest on your mortgage, they wanted more. So they chopped up their home loan portfolios and packaged them into “mortgage backed securities” (MBS) that could then be sold to Wall Street investors for even bigger profits. The only problem was, Wall Street had a huge appetite for these MBS’s and could not get enough of them. They kept demanding more of them from the banks so they did everything in their power to churn more out but unfortunately they took time to package and properly securitize. What happened next is where they went wrong. The banks decided to cut corners and avoid two critical steps in the securitization process so they could speed up the funding of these loans from the standard 45 – 60 days to as quick as 4 to 5 days. We all know time is money on Wall Street right? They committed this fraud knowingly and just kept doing it, over and over again 62 million times as shown on all of the documents being currently presented to the courts. The banks left their fingerprints on the gun, providing homeowners with the legal leverage needed to expose this fraud and use it to save their homes from imminent foreclosure.

The question is….will you choose to take action like so many have already done or will you sit back and wait to see what happens? The banks are counting on you doing nothing and going quietly? Become the “squeaky wheel” – show them you are serious about defending your home!

Securitization Explained

The Alphabet Problem – The Pooling and Servicing Agreement

The Pooling and Servicing Agreement (PSA) is the document that actually creates a residential mortgage backed securitized trust and establishes the obligations and authority of the Master Servicer and the Primary Servicer. The PSA also establishes that mandatory rules and procedures for the sales and transfers of the mortgages and mortgage notes from the originator’s to the Trust. It is this unbroken chain of assignments and negotiations that creates what we have called “The Alphabet Problem.”

In order to understand the “Alphabet Problem,” you must keep in mind that the primary purpose of securitization is to make sure the assets (e.g., mortgage notes) are both FDIC and Bankruptcy “remote” from the originator. As a result, the common structures seek to create at least two “true sales” between the originator and the Trust. You therefore have in the most basic securitized structure the originator, the sponsor, the depositor and the Trust. We refer to these parties as the A (originator), B (sponsor), C (depositor) and D (Trust) alphabet players. The other primary but non-designated player in my alphabet game is the Master Document Custodian for the Trust. The MDC is entrusted with the physical custody of all of the “original” notes and mortgages and the assignment, sales and purchase agreements. The MDC must also execute representations and attestations that all of the transfers really and truly occurred “on-time” and in the required “order” and that “true sales” occurred at each link in the chain. Section 2.01 of most PSAs includes the mandatory conveyancing rules for the Trust and the representations and warranties. The basic terms of this Section of the standard PSA is set-forth below:

The complete inability of the mortgage servicers and the Trusts to produce such unbroken chains of proof along with the original documents is the genesis for all of the recent court rulings. One would think that a simple request to the Master Document Custodian would solve these problems. However, a review of the cases reveals a massive volume of transfers and assignments executed long after the “closing date” for the Trust from the “originator” directly to the “trust.” We refer to these documents as “A to D” transfers and assignments. There are some serious problems with the A to D documents. First, at the time these documents are executed the A party has nothing to sell or transfer since the PSA provides such a sale and transfer occurred years ago. Second, the documents completely circumvent the primary objective of securitization by ignoring the “true sales” to the Sponsor (the B party) and the Depositor (the C party). In a true securitization, you would never have any direct transfers (A to D) from the originator to the trust. Third, these A to D transfers are totally inconsistent with the representations and warranties made in the PSA to the Securities and Exchange Commission and to the holders of the bonds (the “Certificate holders”) issued by the Trust. Fourth, in many cases the A to D documents are executed by parties who are not employed by the originator but who claim to have “signing authority” or some type of “agency authority” from the originator. Finally, in many of these A to D document cases the originator is legally defunct at the time the document is in fact signed or the document is signed with a current date but then states that it has an “effective date” that was one or two years earlier. Hence, this is what we call the Alphabet Problem. In the eyes of the courts and millions of homeowners nationwide, all of this spells out the word FRAUD, and there is no legal defense for the lender on this.

editors comment

THEY COULD HAVE A LEGITIMATE CAUSE OF ACTION.
THE BIG FIVE LENDERS SAT AROUND A TABLE SOMEWHERE AND PLANNED FOR THE INFUSION OF CAPITAL AND THE PUMPING OF THE REAL ESTATE MARKET IN AN UNPRECEDENTED AMOUNT. SEE THE DOCUMENTARY “INSIDE JOB” ACADEMY AWARD WINNER FOR A DOCUMENTARY. AT SOME TIME THEY KNEW THAT THEY WHERE GOING TO STOP THE MUSIC AND THERE WOULD BE NO CHAIRS TO SIT IN ONCE THE MUSIC STOPPED.
THE KRAMER LAWSUIT IS ABOUT THIS FRAUD PERPETRATED ON THE AMERICAN TAXPAYER. THE PROBLEM IS IT WAS SOLD AS A FORECLOSURE DEFENSE METHOD WHICH IT IS NOT. THE OTHER PROBLEM IS THAT AN ATTORNEY NEEDS TO HAVE A RELATIONSHIP WITH HIS CLIENT TO DIRECTLY REPRESENT THE CLIENTS INTEREST. WITH OVER 10,000 CLIENTS AND 55 MILLION IN FEES THIS WOULD BE IMPOSSIBLE TASK. I BELIEVE THIS IS WHERE THE FALSE ADVERTISING ISSUE PRESENTS ITSELF.

Posted by Foreclosure Fraud on June 6, 2010
(St. George, UT) June 5, 2010 – A court order issued by Fifth District Court Judge James L. Shumate May 22, 2010 in St. George, Utah has stopped all foreclosure proceedings in the State of Utah by Bank of America Corporation, ; Recontrust Company, N.A; Home Loans Servicing, LP; Bank of America, FSB; http://www.envisionlawfirm.com. The Court Order if allowed to become permanent will force Bank of America and other mortgage companies with home loans in Utah to adhere to the Utah laws requiring lenders to register in the state and have offices where home owners can negotiate face-to-face with their lenders as the state lawmakers intended (Utah Code ‘ 57-1-21(1)(a)(i).). Telephone calls by KCSG News for comment to the law office of Bank of America counsel Sean D. Muntz and attorney Amir Shlesinger of Reed Smith, LLP, Los Angeles, CA and Richard Ensor, Esq. of Vantus Law Group, Salt Lake City, UT were not returned.

The lawsuit filed by John Christian Barlow, a former Weber State University student who graduated from Loyola University of Chicago and receive his law degree from one of the most distinguished private a law colleges in the nation, Willamette University founded in 1883 at Salem, Oregon has drawn the ire of the high brow B of A attorney and those on the case in the law firm of Reed Smith, LLP, the 15th largest law firm in the world.

Barlow said Bank of America claims because it’s a national chartered institution, state laws are trumped, or not applicable to the bank. That was before the case was brought before Judge Shumate who read the petition, supporting case history and the state statute asking for an injunctive relief hearing filed by Barlow. The Judge felt so strong about the case before him, he issued the preliminary injunction order without a hearing halting the foreclosure process. The attorney’s for Bank of America promptly filed to move the case to federal court to avoid having to deal with the Judge who is not unaccustomed to high profile cases and has a history of watching out for the “little people” and citizen’s rights.

The legal gamesmanship has begun with the case moved to federal court and Barlow’s motion filed to remand the case to Fifth District Court. Barlow said is only seems fair the Bank be required to play by the rules that every mortgage lender in Utah is required to adhere; Barlow said, “can you imagine the audacity of the Bank of America and other big mortgage lenders that took billions in bailout funds to help resolve the mortgage mess and the financial institutions now are profiting by kicking people out of them homes without due process under the law of the State of Utah.

Barlow said he believes his client’s rights to remedies were taken away from her by faceless lenders who continue to overwhelm home owners and the judicial system with motions and petitions as remedies instead of actually making a good-faith effort in face-to-face negotiations to help homeowners. “The law is clear in Utah,” said Barlow, “and Judge Shumate saw it clearly too. Mortgage lender are required by law to be registered and have offices in the State of Utah to do business, that is unless you’re the Bank of America or one of their subsidiary company’s who are above the law in Utah.”

Barlow said the Bank of America attorneys are working overtime filing motions to overwhelm him and the court. “They simply have no answer for violating the state statutes and they don’t want to incur the wrath of Judge Shumate because of the serious ramifications his finding could have on lenders in Utah and across the nation where Bank of America and other financial institutions, under the guise of a mortgage lender have trampled the rights of citizens,” he said.

“Bank of America took over the bankrupt Countrywide Home Loan portfolio June 3, 2009 in a stock deal that has over 1100 home owners in foreclosure in Utah this month alone, and the numbers keep growing,” Barlow said.

The second part of the motion, Barlow filed, claims that neither the lender, nor MERS*, nor Bank of America, nor any other Defendant, has any remaining interest in the mortgage Promissory Note. The note has been bundled with other notes and sold as mortgage-backed securities or otherwise assigned and split from the Trust Deed. When the note is split from the trust deed, “the note becomes, as a practical matter, unsecured.” Restatement (Third) of Property (Mortgages) § 5.4 cmt. a (1997). A person or entity only holding the trust deed suffers no default because only the Note holder is entitled to payment. Basically, “[t]he security is worthless in the hands of anyone except a person who has the right to enforce the obligation; it cannot be foreclosed or otherwise enforced.” Real Estate Finance Law (Fourth) § 5.27 (2002).

*MERS is a process that is designed to simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans. http://www.mersinc.org

The Kansas Court of Appeals has issued a decision that is both stunning in its own right, but also demonstrates the trend in courts all over this nation which spells HUGE changes in the real estate and mortgage landscape. Realtors and banksters take note:

In a long and thoughtful decision in the case of Landmark Nat’l Bank v. Kessler the Kansas Court of Appeals has held that MERS (Mortgage Electronic Registration Systems, Inc.) does not have standing to bring foreclosure actions on behalf of the owners of mortgage notes archived in its system.

Some background:

In the good old days, the legislatures of the various states set up a system for recording mortgages, usually in the County Clerk’s Office. Anyone wishing to know what obligations were imposed upon the real estate, like for instance a title search company, could go to the County Clerk’s Office and look up the block and lot number of the property and know who owned what, who owed what and to whom and whether there were any liens or mortgages on the property and who had what priority.

If you took out a mortgage from bank A, and A later resold your mortgage to refinance company B, well B would go to the County Clerk’s Office and record the transfer of the mortgage. Are you following me so far? B would also receive the original signature copy-the one where you wrote your name in blue ink-of the mortgage paperwork. In order to foreclose, the mortgagee/creditor is supposed to present the original documents in court as one way of proving that it is the true party to whom the debt is own and for whom the mortgage trust (the interest in the real estate) exists.

There are filing fees and costs to have a person go down to the County Clerk’s Office to record the mortgage transfer.

Some “genius” got the bright idea of forming a private entity to circumvent the government filing system; and “poof” MERS was born.

Banks pay a fee to “join” MERS. They then send all their mortgage records or at least their mortgage record information (MERS is very secretive about just how they do what they do) to MERS. MERS is supposed to keep track of the information about each mortgage. Then the mortgage gets split. The Promissory Note, that is the right to receive payments from the borrower, gets either sold or farmed out to a servicer who is paid “fees” to collect the payments and do other administrative tasks like manage any payments for taxes and the like out of escrow funds.

The mortgage deed or mortgage trust, that is the legal interest in the real estate that would normally give a lender the right to foreclose in the event of non-payment-may be sold to someone else. The payments themselves are “securitized” that is bundled with other mortgages and sold as Credit Backed Securities, which we now know as Wall Street Toxic Assets.

Up until recently when a homeowner fell behind in the mortgage payments and the it came time to foreclose, the servicer – who owned no interest whatsoever in the real estate – would appear as plaintiff and the lawyer would fill out an affidavit saying that the actual, blue ink signature, original copy of the mortgage documents were lost, or destroyed, but that the court should waive that requirement because MERS can appear on behalf of the owner of the right to foreclose and certify that the owner is somewhere in the MERS system. The transfers are not recorded in the County Clerk’s Office and all you will see is the transfer to MERS, if that, but not any subsequent transfers within MERS.

In the beginning, homeowners did not realize and often stipulated to waive presentation of the original documents. STUPID, STUPID, STUPID. Then a few wised up and found that their cases got postponed indefinitely. Not a “win” but at least they still had a roof over their heads for the time being.

Then banks got the bright idea of saying that MERS was the agent for the true owner. The Kansas decision says that won’t fly either.

BUT, now for the good part:

The court opined that

Indeed, an assignment of a mortgage without the debt transfers nothing. 55 Am. Jur. 2d, Mortgages § 1002. Thus, the mortgagee, who must have an interest in the debt, is the lender in a typical home mortgage.

Understand the possible implications of this. If other states take the same approach as Kansas, that means the splitting of the debt from the mortgage note effectively cancels the “mortgage interest” that is the power over the real property and converts the debt to a simple unsecured personal debt just on a promissory note. Which means they couldn’t take your house in foreclosure, though they can sue you personally on the debt, just like any other unsecured creditor can. I am assuming, without going to deep into it today, that as a personal debt, it may be dischargeable in bankruptcy. But we will have to wait for a few test cases to prove this.

What this also means is, that in the meantime, if you are trying to buy a house, you have to find out if your seller has a mortgage that may have been repackaged and lodged in MERS because you will have no way of knowing – since your title company cannot tell who actually might own the mortgage interest in your real estate if all the County Clerk’s records say is “MERS”.

This makes for a scary time for title insurers, I’m guessing.

There will be more on this case, I’m sure, it will just take some time to suss out all the ramifications.

2. MERS’s Authority to Operate in California
The FAC fleetingly alleges that “MERS [is] not registered to do
business in California.” FAC ¶ 9. While MERS’s registration
status receives no other mention in the complaint, plaintiff’s
opposition memorandum purports to support several of plaintiff’s
claims with this allegation, and defendant’s reply discusses it
on the merits. The court therefore discusses this issue here.
The California Corporations Code requires entities that
“transact[] intrastate business” in California to acquire a
“certificate of qualification” from the California Secretary of
State. Cal. Corp. Code § 2105(a). MERS argues that its activities
fall within exceptions to the statutory definition of transacting
intrastate business, such that these requirement does not apply.
See Cal. Corp. Code § 191. It is not clear to the court that
MERS’s activity is exempt.
Page 23
MERS primarily relies on Cal. Corp. Code § 191(d)(3). Cal.
Corp. Code § 191(d) enumerates various actions that do not
trigger the registration requirement when performed by “any
foreign lending institution.” Because neither the FAC nor the
exhibits indicate that MERS is such an institution, MERS cannot
protect itself under this exemption at this stage. The statute
defines “foreign lending institution” as “including, but not
limited to: [i] any foreign banking corporation, [ii] any foreign
corporation all of the capital stock of which is owned by one or
more foreign banking corporations, [iii] any foreign savings and
loan association, [iv] any foreign insurance company or [v] any
foreign corporation or association authorized by its charter to
invest in loans secured by real and personal property[.]” Cal.
Corp. Code § 191(d). Neither any published California decision
nor any federal decision has interpreted these terms. Because
plaintiff alleges that MERS does not itself invest in loans or
lend money, it appears that [i], [iii], and [v] do not apply.
MERS does not claim to be an insurance company under [ii].
Finally, it is certainly plausible that not all of MERS’s owners
are foreign corporations. At this stage of litigation, the court
cannot conclude that MERS falls within any of the five enumerated
examples of “foreign lending institutions,” and the court
declines to address sua sponte whether MERS otherwise satisfies
subsection (d).
Corp. Code § 191(d). Neither any published California decision
nor any federal decision has interpreted these terms. Because
plaintiff alleges that MERS does not itself invest in loans or
lend money, it appears that [i], [iii], and [v] do not apply.
MERS does not claim to be an insurance company under [ii].
Finally, it is certainly plausible that not all of MERS’s owners
are foreign corporations. At this stage of litigation, the court
cannot conclude that MERS falls within any of the five enumerated
examples of “foreign lending institutions,” and the court
declines to address sua sponte whether MERS otherwise satisfies
subsection (d).
Defendants also invoke a second exemption, Cal. Corp. Code
§ 191(c)(7). While section 191(c) is not restricted to “lending
institutions,” MERS’s acts do not fall into the categories
Page 24
enumerated under the section, including subsection (c)(7).
Plaintiff alleges that MERS directed the trustee to initiate
nonjudicial
foreclosure on the property. Section 191(c)(7)
provides that “[c]reating evidences of debt or mortgages, liens
or security interests on real or personal property” is not
intrastate business activity. Although this language is
unexplained, directing the trustee to initiate foreclosure
proceedings appears to be more than merely creating evidence of a
mortgage. This is supported by the fact that a separate statutory
section, § 191(d)(3) (which MERS cannot invoke at this time, see
supra), exempts “the enforcement of any loans by trustee’s sale,
judicial process or deed in lieu of foreclosure or otherwise.”
Interpreting section (c)(7) to include these activities would
render (d)(3) surplusage, and such interpretations of California
statutes are disfavored under California law. People v. Arias,
45 Cal. 4th 169, 180 (2008), Hughes v. Bd. of Architectural
Examiners, 17 Cal. 4th 763, 775 (1998). Accordingly,
section 191(c)(7) does not exempt MERS’s activity.[fn12]
For these reasons, plaintiff’s argument that MERS has acted
Page 25
in violation of Cal. Corp. Code § 2105(a) is plausible, and
cannot be rejected at this stage in the litigation.
3. Whether MERS Has Acted UltraVires
Plaintiff separately argues that MERS has acted in violation of
its own “terms and conditions.” These “terms” allegedly provide
that
MERS shall serve as mortgagee of record with respect to
all such mortgage loans solely as a nominee, in an
administrative capacity, for the beneficial owner or
owners thereof from time to time. MERS shall have no
rights whatsoever to any payments made on account of
such mortgage loans, to any servicing rights related to
such mortgage loans, or to any mortgaged properties
securing such mortgage loans. MERS agrees not to assert
any rights (other than rights specified in the
Governing Documents) with respect to such mortgage
loans or mortgaged properties. References herein to
“mortgage(s)” and “mortgagee of record” shall include
deed(s) of trust and beneficiary under a deed of trust
and any other form of security instrument under
applicable state law.”
FAC ¶ 10. The FAC does not specify the source of these “terms and
conditions.” Plaintiff’s opposition memorandum states that they
are taken from MERS’s corporate charter, implying that an action
in violation thereof would be ultra vires. Opp’n at 4. Plaintiff
then alleges that these terms do not permit MERS to “act as a
nominee or beneficiary of any of the Defendants.” FAC ¶ 32.
However, the terms explicitly permit MERS to act as nominee.
Plaintiff has not alleged a violation of these terms.
4. Defendants’ Authority to Foreclose
Another theme underlying many of plaintiff’s claims is that
defendants have attempted to foreclose or are foreclosing on the
Page 26
property without satisfying the requirements for doing so.
Plaintiff argues that foreclosure is barred because no defendant
is a person entitled to enforce the deed of trust under the
California Commercial Code and because defendants failed to issue
a renewed notice of default after the initial trustee’s sale was
4. Defendants’ Authority to Foreclose
Another theme underlying many of plaintiff’s claims is that
defendants have attempted to foreclose or are foreclosing on the
Page 26
property without satisfying the requirements for doing so.
Plaintiff argues that foreclosure is barred because no defendant
is a person entitled to enforce the deed of trust under the
California Commercial Code and because defendants failed to issue
a renewed notice of default after the initial trustee’s sale was
rescinded.

“Foreclosure” A home owners nightmare currently sweeping the US and beyond as result of, principally, the “Sub-Prime Mortgage” market collapse. A market designed by skilled “Gamblers” who, unlike their lesser counter parts playing a straight “Game of Chance” in the Nevada casinos – Set out to established a game, to be backed by vast sums of international money, and, where the principal players could only win irrespective of any monies lost by their organizations at the end of the day.

Recent news articles report that “The FBI’s investigation of sub-prime lending practices could take a long time, officials say” – The SEC has opened about three dozen civil investigations into the sub-prime market collapse” A FBI spokesman has indicated they now have “34 mortgage fraud task forces and working groups that included other federal agencies and state and local law enforcement officials” and that “We consider it a significant and growing crime problem”

So What! at the end of the day, apart from a few “Fall Guys” to feed the media and public needs, the real parties responsible, financially able to buy the best in legal representation, will remain free to sit back to enjoy their gains. Or, perhaps not so this time.

As the full realizations of the effects of the massive negative financial impact on the US economy sweeps the population and its ongoing effects world wide most will appreciate that we are entering into very new era with new economic giants entering the world arena. Some of these financial giants have already provided “bail Out” monies to US financial institutions and no doubt will provide more throughout the coming years(s).

They are not doing it for love. Self interest and investment? yes. As new masters with major interests they may not be conducive to a future repeat performance of such financial set back and are expecting some sign of serious action by the US. One must wonder at how might the Peoples Republic of China or some of the Arab states deal with persons who were responsible for wrecking their economy. It was not to far past in history when the description for such action was called “Treason”

Many, Mr & Mrs decent Americans may lose not only their homes but also possibly their saving and investments to institutions who were once pillars of good ethics, responsibility and ethical standing.

While untold number will effectively be “losers” to this fiasco there will, by the law of nature, also be some “Winners” As in the great depression of 1929 there were those who emerged with greater strength and wealth and, so to will it be again.

As a homeowner begins research into the lending and foreclosure crisis, there will be many unfamiliar terms, names and companies that come to their attention. Chief among these will be MERS.

MERS is the acronym for Mortgage Electronic Registration Systems. It is a national electronic registration and tracking system that tracks the beneficial ownership interests and servicing rights in mortgage loans. The MERS website says:

“MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans. “

In simple language, MERS is an on-line computer software program for tracking ownership.

MERS was conceived in the early 1990’s by numerous lenders and other entities. Chief among the entities were Bank of America, , Fannie Mae, Freddie Mac, and a host of other such entities. The stated purpose was that the creation of MERS would lead to “consumers paying less” for mortgage loans. Obviously, that did not happen.

This article will attempt to explain MERS in very general detail. It will cover a few issues related to MERS and foreclosure, in order to introduce the reader to the issue of MERS. It is not meant to be a complete discussion of MERS, nor of the legal complexities regarding the arguments for and against MERS. For a more in depth reading of MERS and findings coming out of courts, it is recommended that the reader look at Hawkins, Case No. BK-S-07-13593-LBR (Bankr. Nev. 3/31/2009) (Bankr. Nev., 2009) . It gives a good reading of the issues related to MERS, at least for that particular case. Though in Nevada, it is relevant for California.

(Please note. I am not an attorney and am not giving legal advice. I am just reporting arguments being made against MERS, and also certain case law and applicable statutes in California.

The MERS Process

Traditionally, when a loan was executed, the beneficiary of the loan on the Deed of Trust was the lender. Once the loan was funded, the Deed of Trust and the Note would be recorded with the local County Recorder’s office. The recording of the Deed and the Note created a Public Record of the transaction. All future Assignments of the Note and Deed of Trust were expected to be recorded as ownership changes occurred. The recording of the Assignments created a “Perfected Chain of Title” of ownership of the Note and the Deed of Trust. This allowed interested or affected parties to be able to view the lien holders and if necessary, be able to contact the parties. The recording of the document also set the “priority” of the lien. The priority of the lien would be dependent upon the date that the recording took place. For example, a lien recorded on Jan 1, 2007 for $20,000 would be the first mortgage, and a lien recorded on Jan 2, 2007, for $1,500,000 would be a second mortgage, even though it was a higher amount.

Recordings of the document also determined who had the “beneficial interest” in the Note. An interested party simple looked at the Assignments, and knew who held the Note and who was the legal party of beneficial interest.

(For traditional lending prior to Securitization, the original Deed recording was usually the only recorded document in the Chain of Title. That is because banks kept the loans, and did not sell the loan, hence, only the original recording being present in the banks name.

The advent of Securitization, especially through “Private Investors” and not Fannie Mae or Freddie Mac, involved an entirely new process in mortgage lending. With Securitization, the Notes and Deeds were sold once, twice, three times or more. Using the traditional model would involve recording new Assignments of the Deed and Note as each transfer of the Note or Deed of Trust occurred. Obviously, this required time and money for each recording.

(The selling or transferring of the Note is not to be confused with the selling of Servicing Rights, which is simply the right to collect payments on the Note, and keep a small portion of the payment for Servicing Fees. Usually, when a homeowner states that their loan was sold, they are referring to Servicing Rights.)

The creation of MERS changed the process. Instead of the lender being the Beneficiary on the Deed of Trust, MERS was now named as either the “Beneficiary” or the “Nominee for the Beneficiary” on the Deed of Trust. This meant that MERS was simply acting as an Agent for the true beneficiary. The concept was that with MERS assuming this role, there would be no need for Assignments of the Deed of Trust, since MERS would be given the “power of sale” through the Deed of Trust.

Black’s Law Dictionary defines a nominee as “[a] person designated to act in place of another, usually in a very limited way” and as “[a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1076 (8th ed. 2004). This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves……..The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship.

The naming of MERS as the Beneficiary meant that certain other procedures had to change. This was a result of the Note actually being made out to the lender, and not to MERS. Before explaining this change, it would be wise to explain the Securitization process.

Securitizing a Loan

Securitizing a loan is the process of selling a loan to Wall Street and private investors. It is a method with many issues to be considered, especially tax issues, which is beyond the purview of this article. The methodology of securitizing a loan generally followed these steps:

· A Wall Street firm would approach other entities about issuing a “Series of Bonds” for sell to investors and would come to an agreement. In other words, the Wall Street firm “pre-sold” the bonds.

· The Wall Street firm would approach a lender and usually offer them a Warehouse Line of Credit. The Warehouse Credit Line would be used to fund the loans. The Warehouse Line would be covered by restrictions resulting from the initial Pooling & Servicing Agreement Guidelines and the Mortgage Loan Purchase Agreement. These documents outlined the procedures for creation of the loans and the administering of the loans prior to, and after, the sale of the loans to Wall Street.

· The Lender, with the guidelines, essentially went out and found “buyers” for the loans, people who fit the general characteristics of the Purchase Agreement,. (Guidelines were very general and most people could qualify.” The Lender would execute the loan and fund it, collecting payments until there were enough loans funded to sell to the Wall Street firm who could then issue the bonds.

· Once the necessary loans were funded, the lender would then sell the loans to the “Sponsor”, usually either a subsidiary of the Wall Street firm, of a specially created Corporation of the lender. At this point, the loans are separated into “tranches” of loans, where they will be eventually turned into bonds.

Next, the loans were “sold” to the “Depositor”. This was a “Special Purpose Vehicle” designed with one purpose in mind. That was to create a “bankruptcy remote vehicle” where the lender or other entities are protected from what might happen to the loans, and/or the loans are “protected” from the lender. The “Depositor” would have once again been created by the Wall Street firm or the Lender.

Then, the “Depositor” places the loans into the Issuing Entity, which is another created entity solely used for the purpose of selling the bonds.

Finally, the bonds would be sold, with a Trustee appointed to ensure that the bondholders received their monthly payments.

As can be seen, each Securitized Loan has had the ownership of the Note transferred two to three times at a minimum, but, no Assignments of Beneficiary are executed under most circumstances. If such an Assignment occurs, it will usually occur after a Notice of Default was filed.

(Note: This is a VERY simplified version of the process, but it gives the general idea. Depending upon the lender, it could change to some degree, especially if Fannie Mae bought the loans. The purpose of such a convoluted process was so that the entities selling the bonds could become a “bankruptcy remote” vehicle, protecting lenders and Wall Street from harm, and also creating a “Tax Favorable” investment entity known as an REIMC. An explanation of this process would be cumbersome at this time.)

New Procedures

As mentioned previously, Securitization and MERS required many changes in established practices. These practices were not and have not been codified, so they are major points of contention today. I will only cover a few important issues which are now being fought out in the courts.

One of the first issues to be addressed was how MERS might foreclose on a property. This was “solved” through an “unusual” practice.

· MERS has only 44 employees. They are all “overhead”, administrative or legal personnel. How could they handle the load of foreclosures, Assignments, etc to be expected of a company with their duties and obligations?

When a lender, title company, foreclosure company or other firm signed up to become a member of MERS, one or more of their people were designated as “Corporate Officers” of MERS and given the title of either Assistant Secretary or Vice President. These personnel were not employed by MERS, nor received income from MERS. They were named “Certify Officers” solely for the purpose of signing foreclosure and other legal documents in the name of MERS. (Apparently, there are some agreements which “authorize” these people to act in an Agency manner for MERS.)

This “solved” the issue of not having enough personnel to conduct necessary actions. It would be the Servicers, Trustees and Title Companies conducting the day-to-day operations needed for MERS to function.

As well, it was thought that this would provide MERS and their “Corporate Officers” with the “legal standing” to foreclose.

However, this brought up another issue that now needed addressing:

* When a Note is transferred, it must be endorsed and signed, in the manner of a person signing his paycheck over to another party. Customary procedure was to endorse it as “Pay to the Order of” and the name of the party taking the Note and then signed by the endorsing party. With a new party holding the Note, there would now need to be an Assignment of the Deed. This could not work if MERS was to be the foreclosing party.

Once a name is placed into the endorsement of the Note, then that person has the beneficial interest in the Note. Any attempt by MERS to foreclose in the MERS name would result in a challenge to the foreclosure since the Note was owned by “ABC” and MERS was the “Beneficiary”. MERS would not have the legal standing to foreclose, since only the “person of interest” would have such authority. So, it was decided that the Note would be endorsed “in blank”, which effectively made the Note a “Bearer Bond”, and anyone holding the Note would have the “legal standing” to enforce the Note under Uniform Commercial Code. This would also suggest to the lenders that Assignments would not be necessary.

MERS has recognized the Note Endorsement problem and on their website, stated that they could be the foreclosing party only if the Note was endorsed in blank. If it was endorsed to another party, then that party would be the foreclosing party.

As a result, most Notes are endorsed in blank, which purportedly allows MERS to be the foreclosing party. However, CA Civil Code 2932.5 has a completely different say in the matter. It requires that the Assignment of the Deed to the Beneficial Interest Holder of the Note.

CA Civil Code 2932.5 – Assignment

Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded.

As is readily apparent, the above statute would suggest that Assignment of the Deed to the Note Holder is a requirement for enforcing foreclosure.

The question now becomes as to whether a Note Endorsed in Blank and transferred to different entities as indicated previously does allow for foreclosure. If MERS is the foreclosing authority but has no entitlement to payment of the money, how could they foreclose? This is especially important if the true beneficiary is not known. Why do I raise the question of who the true beneficiary is? Again, from the MERS website……..

* “On MERS loans, MERS will show as the beneficiary of record. Foreclosures should be commenced in the name of MERS. To effectuate this process, MERS has allowed each servicer to choose a select number of its own employees to act as officers for MERS. Through this process, appropriate documents may be executed at the servicer’s site on behalf of MERS by the same servicing employee that signs foreclosure documents for non-MERS loans.

Until the time of sale, the foreclosure is handled in same manner as non-MERS foreclosures. At the time of sale, if the property reverts, the Trustee’s Deed Upon Sale will follow a different procedure. Since MERS acts as nominee for the true beneficiary, it is important that the Trustee’s Deed Upon Sale be made in the name of the true beneficiary and not MERS. Your title company or MERS officer can easily determine the true beneficiary. Title companies have indicated that they will insure subsequent title when these procedures are followed.”

There, you have it. Direct from the MERS website. They admit that they name people to sign documents in the name of MERS. Often, these are Title Company employees or others that have no knowledge of the actual loan and whether it is in default or not.

Even worse, MERS admits that they are not the true beneficiary of the loan. In fact, it is likely that MERS has no knowledge of the true beneficiary of the loan for whom they are representing in an “Agency” relationship. They admit to this when they say “Your title company or MERS officer can easily determine the true beneficiary.

To further reinforce that MERS is not the true beneficiary of the loan, one need only look at the following Nevada Bankruptcy case, Hawkins, Case No. BK-S-07-13593-LBR (Bankr.Nev. 3/31/2009) (Bankr.Nev., 2009) – ”A “beneficiary” is defined as “one designated to benefit from an appointment, disposition, or assignment . . . or to receive something as a result of a legal arrangement or instrument.” BLACK’S LAW DICTIONARY 165 (8th ed. 2004). But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans. To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack like a duck, then it’s not a duck.”

If one accepts the above ruling, which MERS does not agree with, MERS would not have the ability to foreclose on a property for lack of being a true Beneficiary. This leads us back to the MERS as “Nominee for the Beneficiary” and foreclosing as Agent for the Beneficiary. There may be pitfalls with this argument.

When the initial Deed of Trust is made out in the name of MERS as Nominee for the Beneficiary and the Note is made to ABC Lender, there should be no issues with MERS acting as an Agent for ABC Lender. Hawkins even recognizes this as fact.

The issue does arise when the Note transfers possession. Though the Deed of Trust states “beneficiary and/or successors”, the question can arise as to who the successor is, and whether Agency is any longer in effect. MERS makes the argument that the successor Beneficiary is a MERS member and therefore Agency is still effective. But does this argument hold up under scrutiny?

The original Note Holder, AB Lender, no longer holds the note, nor is entitled to payment.

Furthermore, the Note is endorsed in blank, and no Assignment of the Deed has been made to any other entity, so who is the true beneficiary and Note Holder?

It is now the contention of many that the Agency/Nominee relationship has been completely terminated between MERS and the original lender, so MERS has no authority to foreclose, or even to Assign the Deed.

In Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal. 2008) (”[I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner.”);

Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008) (unpublished opinion) (”[F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned. . . . MERS purportedly assigned both the deed of trust and the promissory note. . . . However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority . . . to assign the note.”).

Separation of the Note and the Deed

In the case of MERS, the Note and the Deed of Trust are held by separate entities. This can pose a unique problem dependent upon the court. There are many court rulings based upon the following:

“The Deed of Trust is a mere incident of the debt it secures and an assignment of the debt carries with it the security instrument. Therefore, a Deed Of Trust is inseparable from the debt and always abides with the debt. It has no market or ascertainable value apart from the obligation it secures.

A Deed of Trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the Deed Of Trust without a transfer of the debt is without effect. “

This very “simple” statement poses major issues. To easily understand, if the Deed of Trust and the Note are not together with the same entity, then there can be no enforcement of the Note. The Deed of Trust enforces the Note. It provides the capability for the lender to foreclose on a property. If the Deed is separate from the Note, then enforcement, i.e. foreclosure cannot occur.

MERS, actually the servicer, will Assign the Deed to the Note Holder, almost always after the Notice of Default has been filed. This will be an attempt to reunite the Deed and Note. But, as noted previously, MERS would likely no longer have the ability to Assign the Deed, since the Agency/Nominee status has been terminated. This could pose major issues, especially if the original lender is no longer in business.

When viewing a MERS loan, the examiner or attorney must pay careful attention to the following issues.

* The recorded history of the Deed to determine not just the current Deed Holder, but also who the Note Holder is. Are they one and the same, or are they separated, leading to an inability to foreclose unless reunited.

* When the Notice of Default was filed, were the Note and Deed separated, which would suggest that the Notice of Default was potentially unlawful.

* Did MERS have the authority to Foreclose, or even to make Assignments? There are a number of court cases suggesting otherwise.

* Who is signing for MERS? Is it a person with the Title Company, Trustee, or Servicer?

* Does the signer have legitimate authority to sign? Is the person holding factual knowledge of the homeowner being in default?

The entire subject of MERS is fraught with controversy and questions. Certainly, at the very least, MERS actions pose legal issues that are still being addressed each and every day. As to where these actions will ultimate lead, it is anybody’s guess. With some courts, the court sides with the lender, and others side with the homeowner. However, there does appear to be a trend developing that suggests, at least in Bankruptcy Courts, MERS is losing support.

Update:

I would like to point out that there is significant case law developing in other states regarding MERS. However, these are actions in other jurisdictions that do not necessarily apply in California. As a matter of fact, these arguments are generally not being accepted by most judges.
Currently, the state of California litigation is confused to say the least. Most judges are accepting the the California Foreclosure Statutes, Civil Code 2924, is all encompassing with regards to foreclosures. But 2924 only covers the procedural process. It does not take into account other relevant statutes related to Assignments of Beneficiary and Substitution of Trustee. Until such concerns are addressed and there is effective case law to cite, there will continue to be issues.

This should be a pretty good start for those of you faced with a foreclosure in which MERS is falsely asserting that it is the owner of the promissory note. Whether MERS is or was ever the holder is a FACT QUESTION which can be determined only by ascertain the chain of custody of the promissory note. When the promissory note is lost, missing or stolen, MERS is NOT the holder.

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